Should you fire your customers?

What will happen if you do?

In a recent post on the New York Times website, in the section called “You’re the boss — the art of running a small business,” Jennifer Walzer, the owner of a company that provides corporate  data backups, wrote a post suggesting that her smaller clients might have to be “fired” in order to provide more focus on larger clients and prospects.  “As much as I would like to continue to take care of our small clients, we might have to start introducing them to other options.”

Jennifer runs a high-touch company that provides extensive support services to all her clients, even the small ones, and she is concerned with her limited staff, that she may be expending too much energy on clients that cannot help her achieve her growth objectives.  These concerns are not to be easily discarded.

But the issue that she raises is a broader one that is applicable to customer-driven companies across industries:  “what should I do with my lower-revenue or margin customers?”

Traditionally, the playbook has read that you should “fire” or “de-market” your lowest value customers.  “Fire” usually means disconnecting, unsubscribing or refusing to service customers who do not meet a specific financial criteria.  “De-market” is a bit more subtle — it means to cut off all voluntary communications with a customer to discourage them from revisiting your business.  Either way, the result is similar — they go elsewhere.  By doing so, you theoretically improve the composition of your base and focus more attention on better customers or on finding prospects who resemble better customers.  That is the quandary that Jennifer seems to find herself in.

Note that the qualification that Jennifer is using is low revenue or margin.  The question is whether or not those are the right metrics to evaluate customers.  I know, if you follow traditional shareholder models, you would say that a company is all about producing revenue or profits, and that those metrics are the only important criteria.  But recent research seems to suggest that that goal is best achieved by a strong focus on customer relationships and service.  As a result, I would suggest that the most important criteria for determining whether or not to retail a customer would be “can we excel at building relationships and receive value for our work?”

Remember, your greatest opportunities lie not just in building and maintaining relationships with your Best Customers, but also cultivating relationships with customers who have potential to deepen their relationship with you.  As  result, here are three questions you might want to ask before you break off relationships with a customer:

1. How strong is my relationship? How many times does this customer do business with me?  Do I have a conversation going with them?   Low, value, highly frequent customer with good interaction patterns often make good recommenders for your business, extending their value threefold or more.
2. Is this customer in a strategic business for me? Sometimes low value customers can help provide the volume necessary for a company to build the skills and scale in a business that will benefit the company over the long-term.
3. What don’t I know about this customer? Sometimes, the information we don’t know can be as vital as the information we do.  One of the key metrics that is hard to obtain is whether or not the customer is actually spending a lot in the category, but just not with you.  Often if you have customers with low revenue or margin, and all the rest of the indicators suggest they SHOULD be best customers, they may be, just not for you.

Ultimately, the decision about whether or not to fire customers is a question of value — value to you and value to them.  If you can find value to both, then you have the basis for a long-term relationship, even if the overall value is low at the moment.  If not, then the two sides need to try to reconcile.  Does this seem like a marriage discussion?  Well, in some ways, it is.  And like a marriage, if both sides want to make the relationship work, then it usually can.

Divorce is the last option.

Have you cut off customers?  What was your criteria and were you pleased with the results?

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Tagged as: attrition, best customer experience, bestcustomer, customer attrition, Customer base, customer centric, Customer Centricity, Customer experience, Customer Management, Customer retention, Customer service, customercentric, New York Times, retention, Small business